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NaviSite, Inc. (Nasdaq: NAVI) fell 1 3/4 to 3 9/16 Wednesday after the company, an affiliate of CMGI, Inc. (Nasdaq: CMGI) warned of a weak quarter.
Analysts at Robertson Stephens and Adams Harkness downgraded the stock following the announcement, which came even as the company reported results for the first quarter ended October 31st that topped estimates.
Andover, Massachusetts-based NaviSite said revenue for the quarter rose 344 percent from a year earlier to US$26 million, while the net loss widened to $23.1 million, or 39 cents per share, from $19.5 million, or 34 cents.
"We achieved solid growth amid a more demanding environment, across all customer segments, with particularly strong growth in new enterprise customers," said president and chief executive officer Joel Rosen.
The company said it expects revenue of $135 million to $140 million for fiscal 2001, with a loss before taxes, depreciation and amortization of $1.50 to $1.55 per share. The results reflect $20 million to $30 million in capital spending associated with a new data center in London. Expenses associated with the startup will knock about 10 cents off full-year earnings, NaviSite said.
Robertson Stephens analyst Richard Juarez lowered the company's long-term investment rating to attractive from buy, citing the company's "sizable dot-com exposure." Sixty percent of NaviSite's customers are in the troubled Internet sector, he said, presenting "a significant and unsettled financial risk."
Juarez also lowered his revenue estimate for fiscal 2001 to $135.8 million from $151 million "to reflect the purging of at-risk dot-com contracts." He now expects the company to lose $1.52 per share in fiscal 2001, instead of a previously thought $1.32, because the company is investing in a new London data center.
"We continue to believe in NaviSite's potential as an acquisition candidate, and the need for managed hosting and outsourced services," Juarez wrote in a research note. "We are taking a less aggressive posture on the stock given the dot-com risk and the risk of the overall slowdown in economic activity."
NaviSite, which provides Web hosting and application services for companies that conduct business over the Internet, received a boost earlier this month when CMGI said it would accelerate a planned $80 million financing arrangement for the company. "The business metrics for NaviSite continue to exceed expectations," said CMGI chairman David Wetherell, "particularly as NaviSite increases its focus on large and middle-market enterprise customers."
Over the past year, NaviSite shares have traded as high as 164 15/16 and
as low as 3 3/8. The stock has come under pressure because of analyst
downgrades and a weak Internet sector, as well as CMGI's announcement that
it plans to cut some of its dot-com investments -- though the company has
said NaviSite is not one of the properties on the auction block.
